Below is a summary of the MACD technique to watch for confirmation in trends and possibly reversal in certain circumstances. The following is an excerpt from Andrew Page's article from Trading Tutors.
1. The MACD line signals upward momentum when in positive territory, and downward momentum when negative. Use this to validate an observed trend in price.
2. The MACD line can signal overbought and oversold positions. The further the line deviates away from zero, the more likely it is we will see a correction in price. Try drawing support and resistance lines for you MACD line to work out what levels typically represent overbought / oversold positions.
3. Buy signals are generated when the MACD line crosses above the signal line. Buy signals are reinforced when the MACD line is in positive territory.
4. Sell signals are generated when the MACD line crosses below the signal line. Sell signals are reinforced when the MACD line is negative.
5. Divergence between the price and MACD histogram signal weakness in the trend (loss of momentum). When you start to see the two diverge, look to the other MACD signals to confirm the end of a trend.
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